Eskom’s tariff increase will cripple economy, says OUTA

The Organisation Undoing Tax Abuse (OUTA) is calling on the National Energy Regulator (NERSA) to prioritise saving the economy and reject Eskom’s tariff increase.Last week Friday, the organisation submitted a document to NERSA, arguing that Eskom should not receive any tariff increase. Eskom wants a 19.9% price increase to fund a 7% revenue increase.

“Eskom as it currently operates, cannot survive financially in any plausible future scenario and should be unbundled and restructured before it drags the South African economy down with it,” said Ted Blom, OUTA director for energy.

Unbundling Eskom

OUTA’s submission to NERSA suggests that Eskom be split into a generation business and a transmission business.

The group is of the view that if the national power utility had planned the new power stations properly at the original cost of R93 billion ($7 billion), then the price of electricity shouldn’t be more than 40c/kWh.

Instead, Eskom’s inefficiency, corruption and mismanagement has led to costs spiralling out of control and consumers reducing their demand for electricity, the organisation stressed.

“Eskom is not an efficient operator and hence is not legally entitled to any additional cost recovery,” says OUTA’s submission.

According to OUTA, Eskom is trying to defraud NERSA and electricity consumers in its revenue application. Read more...

Revenue generation

Eskom is said to be claiming more than R6 billion ($450 million) for Independent Power Producer expenses. “This is fraudulent in that firstly they are refusing to sign, therefore none or only a few projects will come and, secondly, even if all are signed, almost none will be commissioned in time to impact this revenue application time period. Eskom knows all this,” says OUTA.

The group further stated Eskom also claims more than R25 billion ($2 billion) for generation projects that do not exist.

However, OUTA said there are no other projects under construction. “This is fraud, either by lying about what is spent on Medupi and Kusile or by trying to create a slush fund.”

Lack of transparency

OUTA said in the submission that Eskom hasn’t been honest about the cost of corruption – including the widely known R1.6 billion ($149 million) paid to McKinsey and Trillian for no clear benefit and failed to remove these costs. “By endorsing this application, NERSA will be granting the Eskom corruptors a 20% increase in revenue that can be stolen,” read the document.

It added that the application process itself is flawed because NERSA published Eskom’s application with sections of information blacked out, contrary to a published decision on this in July.

“South Africa’s economy can no longer be captured by deliberate and fraudulent over-forecasts, which guarantee Eskom massive price increase (its own projections run at 20% per year for five years), which must then be funded by an embattled public with little recourse from an unsympathetic and seemingly biased NERSA,” says OUTA.

“Based on the above, it is our contention that a zero % increase is justified,” it concluded.